The Impact of Divisia Money on Monetary Model of Exchange Rate in Indonesia

Leong, Choi‐Meng; Puah, Chin Hong; Liew, Venus Khim−Sen

doi:10.14254/2071-789x.2018/11-2/4

Cited by 10 publications

(9 citation statements)

References 44 publications

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“…This study has also conclusively shown that the monetary aggregate channel using Divisia mo ney is able to perform well in transmitting the impact of monetary policy. This is similar to the result presented by Leong et al (2018b) which stated that economic impact can be transmitted via monetary aggregate into output and inflation. Based on the empirical findings in this study, the monetary aggregate channel is dominant in Indonesia in both the short-and long-term.…”

Section: Discussionsupporting

confidence: 91%

Monetary policy transmission mechanisms in Indonesia: revisiting the role of Divisia money

Tang¹,

Puah²,

Purnamawati³

2020

EA-XXI

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This study examines the performance of monetary policy transmission mechanisms in Indonesia from the money view. The best choice of a monetary policy transmission channel has been a topic of debate for many years among researchers as well as central banks. This is mainly due to the inconsistent performance of different channels across countries and period of time. Therefore, it is crucial for policymakers to have a prior understanding of the strengths of the various monetary policy transmission channels. The role of Divisia money in the process of transmission mechanism has also been considered in the Structural Vector Autoregressive (SVAR) model of this study with eight variables and quarterly data from 1984Q1 to 2019Q4. In Indonesia, interest-rates are the major tool used by the central bank to achieve the targeted inflation rate. However, our empirical analysis has shown otherwise, suggesting that other channels are better in ensuring the transmission smoothness of the monetary policy. In addition, depending on whether a short- or long-run effect is desired, a different channel should be adopted to transmit the intended impact. This study has affirmed the superiority of Divisia money since most of the fluctuations in the key domestic macroeconomic variables in Indonesia can be explained by the monetary aggregate.

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Section: Discussionsupporting

confidence: 91%

Monetary policy transmission mechanisms in Indonesia: revisiting the role of Divisia money

Tang¹,

Puah²,

Purnamawati³

2020

EA-XXI

Self Cite

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“…For example, the method is relatively simple to implement and is recommended for a small sample size (Ghatak & Siddiki, 2001;Narayan, 2005;Pesaran, Shin & Smith, 2001;Matar, 2016). Moreover, the variables are not restricted by a specific lag-length, which provides better results (Laurenceson & Chai, 2003;Leong et al, 2018).…”

Section: +α 2 Lm2 T +α 3 Infr T +α 4 Lipi T +α 5 Lppi T + α 6 Tb T +αmentioning

confidence: 99%

Crude oil prices, macroeconomic indicators and the financial sector in Jordan: Dynamic causes and responses

Abuoliem¹,

Nor²,

Matar³

et al. 2019

Journal of International Studies

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This study contributes to the literature on the relationship between fundamental economic factors and stock price movements. We evaluate the relationship between domestic and international macroeconomic indicators and financial sector index in a frontier market that is Amman Stock Exchange (ASE) in Jordan. We employed the ARDL bound testing approach and the VECM Granger causality test to examine long and short run relationships and the direction of causality among the variables. Monthly time series data from January 2007 to December 2016 were used to identify the relationships for interest rate (positive), inflation rate (insignificant), money supply (insignificant), industrial production index (insignificant), producer price index (negative), trade balance (insignificant), and crude oil price (negative). Our findings indicate that the deposit interest rate positively influenced the financial sector in the short run and the long run, while the producer price index and global oil price had significant negative impacts on the financial sector. This study contributes actionable insight for policy makers and investors regarding how global and domestic factors have significant impact on the financial index in Jordan. The current study provides several important implications and recommendations for investors, policy makers and the government. For example, the results imply that global oil prices have a

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“…This procedure is still a pragmatic approach used for the estimation in various financial and economic studies (Waziri et al, 2018; Abaidoo, 2018; Okunade et al, 2018; Shakil et al, 2018). Monetary fundamentals also were found related to exchange rate using the ARDL in Indonesia (Leong et al, 2018) and thus the investigation is sensible for the Philippines.…”

Section: Introductionmentioning

confidence: 92%

Divisia monetary model of exchange rate determination: the case of Philippines

Leong¹,

Puah²,

Ismail³

2018

EA-XXI

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In literature, inferior performance still prevails as one of the unresolved issues with regard to the monetary model of exchange rate. A money demand function that is unstable can contribute to the inferior performance of the model. One of the causes for an unstable money demand function is the application of the simple sum monetary aggregate in the estimation. Therefore, an alternative measurement of money, the Divisia monetary aggregate, is applied in the estimation of the monetary model of exchange rate. The results show that cointegration exists between monetary fundamentals and the exchange rate in the Divisia model. Consequently, to estimate the exchange rate for the Philippines, the Divisia monetary aggregate can be used as an alternative money supply.

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The Impact of Divisia Money on Monetary Model of Exchange Rate in Indonesia

Cited by 10 publications

References 44 publications

Monetary policy transmission mechanisms in Indonesia: revisiting the role of Divisia money

Monetary policy transmission mechanisms in Indonesia: revisiting the role of Divisia money

Crude oil prices, macroeconomic indicators and the financial sector in Jordan: Dynamic causes and responses

Divisia monetary model of exchange rate determination: the case of Philippines

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